Notesale: Turn your study into money

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Amelia Gruner-Overgaard
Macroeconomics

Mr Mcquillan
27/11/2015

Assess the argument for Government spending during a recession
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A recession is ‘a period of temporary economic decline during which trade and
industrial activity are reduced, generally identified by a fall in GDP in two successive quarters
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During a recession it’s most likely that
government spending will increase; this could increase employment through investment in firms,
paying for benefits to those who are unemployed or paying the costs of corporate tax breaks during
the recession
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Therefore, if the government were to give a subsidy to a firm to expand, this
firm would then employ more people, firms would pay builders and other smaller businesses
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However around 6% of income is saved, so each time this money goes through the
economy it is reduced by that 6%; for the multiplier to be worthwhile, the leakages need to be small
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The negative too Government spending is spending in one department to try and increase economic
growth could limit the impact the spending could have if it was spent elsewhere
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4% or spending on training
the unemployed so they gain new skills, so their chance of employment is higher
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Keynes came to the conclusion that Government spending during a recession is the best way to
break the cycle of recession
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Keynes argued that recession and high unemployment is
brought upon from a decrease in demand
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Also,
hoarding money will rise unemployment, resulting in less money going through the economy, which
leads to a continuous decline in the economy
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5mn
investment which raised by 47% in 2006/2007
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During 2008 the government borrowed £69bn, followed by a borrowing of £156
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Borrowing money continuously for years without a
surplus creates a decline in economic growth, therefore the after effect of the recession will have a
large impact on future generations, as the future government will have to budget their expenditure
to pay back previous borrowing
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Amelia Gruner-Overgaard
Macroeconomics

Mr Mcquillan
27/11/2015

To conclude, I think government spending is essential when the country is deep in recession
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However, is a growing economy really growing if the government are worsening their borrowing
figures? The costs of borrowing need to be worthwhile for the country to benefit from being in debt,
which is reasonably easy to strategize where the money should be spent
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Therefore, government spending is key in a recession

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